Commodity Update: Minerals and Energy – April 2014

Economic data confirmed slower global growth in Q1, but more timely indicators are looking a little more promising. Japan is a major exception where a recent consumption tax hike is having a distortionary effect. US tapered QE again, but market implications appeared relatively muted.

Economic data confirmed slower global growth in Q1, but more timely indicators are looking a little more promising. Japan is a major exception where a recent consumption tax hike is having a distortionary effect.

US tapered QE again, but market implications appeared relatively muted as the move was largely expected and took a back seat to other economic and political events.

After years of being decoupled from global oil markets and regarded to be a less risk hedging measure than Brent, West Texas Intermediate (WTI) is poised to resume its previous status as a world benchmark as stock inventories at Cushing eased to the lowest level in more than four years in April.

Trends for bulk commodity prices were mixed in April, with relative stability (at very weak levels) for both thermal and metallurgical coal, while iron ore briefly recovered from the low levels in March, before retreating again.

Prices for the base metals complex generally rose in the month, but nickel generally outperformed (followed by aluminium), largely driven by supply side factors. Soft Chinese data has been a dampener, but hopes of stimulus have been offsetting.

Gold price have fluctuated over the past month, but generally eased off as demand for ‘safe haven’ assets eased in response to (initially) easing tensions in the Ukraine and signs that the US economy was improving late in Q1.

Overall, our forecasts for commodity prices have been left largely unchanged. We continue to expect only a modest recovery in demand over the forecast horizon, but the recovery is expected to be bumpy.